Power to the people (now we’re taking the risk).



If the People’s Pension , is really the people’s pension, why aren’t the people who are members being told what they are paying for membership?

For some months, I have been saying privately to the management and Trustees of People’s Pension and the management and IGC of the B&CE insurance company (People’s parent) that we need to know the true cost for members of membership.

For some months I have been fobbed off with “limber vows”, so I will now broadcast my complaint a little more vociferously.

Earlier in the year, B&CE swapped their investment management  agreement (IMA) with Legal and General Investment Management for an agreement with State Street Global Adviser. This means £2,000,000,000 +of policyholder and trustee money transferred management.

Under the old agreement with LGIM, when the underlying stock was lent to third parties , the revenues for the “stock-lending” returned to the member funds. Typically this is not the case when State Street lend other people’s money. State Street tend to retain stock lending fees for their own purposes.

These fees can represent a lot of revenue. They can actually provide the fund manager with a way of offering fund management charges to B&CE at considerably less than cost, the cross-subsidy from stock lending making what appears unprofitable – profitable.

Ah – but here’s the rub…

Those stock lending fees are no longer benefiting the member, meaning there is a reduction in performance of the member’s funds.

But the reduction of costs in the IMA to B&CE does not benefit the member either, it benefits B&CE. So were People’s to be offering State Street funds within the 0.50% cover all charge rather than LGIM funds, the member may be getting 1- 5 – 10% less for their money!

Put another way, the equivalent price for the People’s Pension could be anything between 0.5% and 0.6% – depending on how much State Street are stock lending, and what percentage of stock lending fees they are retaining!

So why aren’t The People’s Pension responding to my requests?

The People’s Pension recently finished plum last in a Share Action survey of workplace pension governance. B&CE are the only IGC whose IGC Statement I have not read ( I cannot find it).

Over the summer, People’s promised to get their act together and appointed Gregg McClymont’s excellent researcher – Andy Tarrant – to bolster it’s failing corporate governance team. But Andy’s arrival has made no difference (in this respect).

The People’s Pension and B&CE continue to avoid making a statement on how much stock lending is going on with member’s funds and what percentage of the stock lending revenues are retained by State Street. This is in sharp contrast to LGIM who were transparant in this matter.

What can be done?

Because we cannot get the information, http://www.pensionplaypen.com cannot currently give a conclusive rating on the People’s Pension’s investment product. We must assume that no news is bad news – at the very least for People’s investment governance, but quite probably for member’s investment prospects.

The People’s Pension overall rating has fallen substantially because of its failure to be open and transparent in its governance, this matter is a matter of prime importance.

For this is no small deal- in the long term, it is the investment performance of People’s Pension that will determine the outcomes at retirement for its members. While reduced performance in the short-term will not harm People’s marketability, it would ultimately be a critical success factor of what People’s are doing.

All that can be done , in the short term , is flag the problem and ask People’s for the kind of transparency that their name and status as a “master trust” suggests. B&CE is a mutual insurer so , without shareholders, has only its policyholders and its management to reward. If the policyholders (of which People’s is one) are not being fully rewarded, then we can only conclude that the management are being over-rewarded.

So it is in the B&CE senior management’s best interests to prove to us that they are not using stock lending as a means of transferring cost from their balance sheet to member’s returns.

I call upon the management of B&CE and the Trustees of People’s Pension to make a clear and conclusive statement as to what its IMA with State Street says about the distribution of revenues from stock lending activities and how (if at all) this differs from the IMA with LGIM.


Thanks to Andy Agethangelou’s

transparency symposium

for another opportunity to discuss this and other matter’s yesterday.

Transparency is not tactical, it is strategic, you cannot choose to be transparent – you either are or aren’t. People’s Pension currently aren’t.


don’t make me laugh

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Power to the people (now we’re taking the risk).

  1. Andy Tarrant says:

    The People’s Pension comment on this article can be found at:

    Kind regards
    Andy Tarrant

  2. henry tapper says:

    For those who don’t want to click the link, here’s People’s response
    This is the full text from the link. In summary , State Street retain 30% of stock lending revenues.

    We at The People’s Pension like to challenge, and be challenged. Holding each other to account is key to improving pensions for everyone.

    However, for this dialogue to be effective, it needs to be accurate. Below we set out why Henry’s article is potentially misleading in both the general light it casts and in the detail.

    General comment

    As an organisation we are passionate about transparency and keeping things simple for our members – these are the foundations on which The People’s Pension has been built. Since its launch, we have been one of the only schemes which operated a single annual management charge for members inclusive of all operating expenses (known as the Total Expense Ratio) with no other fees or penalties.

    In addition, we are supporters of the disclosure of transaction costs incurred by fund managers with whom pension providers invest their members’ money.

    We are working with the third-party fund manager with whom we invest our members’ money, State Street, to ensure that all transaction costs incurred in managing that money are disclosed. However much as we might like it to be the case, delivering the full transparency of costs for which we have asked is not an overnight exercise. We invest our members’ money in a fund of funds. This requires a more complex disclosure process than fund managers’ systems have in the past been designed to deliver.

    One might imagine from the article that we were being singled out because we are behind the industry regarding transaction cost disclosure. In fact, we expect to be amongst the earliest adopters of full transparency of transaction costs to our members.

    Specific comment

    Henry Tapper’s article makes some specific points which are either not accurate or not appropriate.

    “State Street tend to retain stock lending for their own purposes” [Phrases are paraphrased for brevity]

    This is not correct. Income generated from securities lending is allocated 70% to the funds (ie the members) and 30% to the lending agent as is the case for all State Street’s Managed Pension Fund clients. State Street takes on all the counter party risk and pays all the costs associated with the lending programme.

    “These stock lending fees do not benefit the member”

    This is not correct. The 70% revenue allocation goes to the members’ funds. From when fund management was changed to State Street (20 January 2016) up to 30 June 2016 the net contribution to the performance of our default Global Investments (up to 85%) Shares fund was c. 1.8 basis points. This was of direct benefit to members whose funds are slightly larger than they otherwise would have been.

    “B&CE are the only IGC whose IGC statement I have not read (I can’t find it)”

    The B&CE IGC Statement is located on the B&CE website in the section that deals with the relevant pension scheme, Easybuild. The People’s Pension is a trust-based scheme and does not have an IGC.

    “LGIM are transparent. State Street aren’t”

    We disagree. State Street are transparent. The People’s Pension members get 70% of any revenue, the costs are taken care of separately by State Street and do not fall on the member, and, critically, State Street bear all the counter party risk. A percentage division of profits is clear and transparent.

    We invest with Managed Pension Funds Limited (SSGA’s UK vehicle for pension fund investors). They produce a quarterly fact sheet that provides full details on the State Street Lending programme, including details of what percentage of the fund is on loan and the contribution to the performance of the funds over the period. They also state how the revenue from securities lending is split. So we know exactly what is going on.

    “We must assume that no news is good news”

    We are working hard on plans for full transparency of transaction costs which we believe will advance the whole transparency agenda and our Trustees are fully committed to supporting this work. We will talk more widely about these when we are ready to do so.

    “Management are being over-rewarded”

    We work at a not-for-profit for many reasons, but financial ones certainly are not top of the list. With no shareholders, the interests of our members have dominated B&CE’s (the provider of The People’s Pension) decision-making for 75 years and this remains the case.

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